Massachusetts holds first auction for its statewide cap-and-trade program

The first auction of 2019 allowances under the Massachusetts cap-and-trade system (Massachusetts Limits on Emissions from Electricity Generators) was held on 18 December 2018. As announced in the Auction Notice, 436,559 allowances – corresponding to five percent of the 2019 cap – were offered for sale at a reserve price of USD 0.50 per allowance. The auction was oversubscribed, resulting in a settlement price of USD 6.71 per allowance for a metric ton of emissions (Market Monitor Report).

As regulated by the air pollution control regulation 310 CMR 7.74, 25% of allowances (2,182,794 allowances) will be auctioned in 2019. The remaining 75% of allowances will be freely allocated. In 2020, only half of the allowances will be freely allocated. For 2021 and all future years, all allowances will be auctioned.

The Massachusetts cap-and-trade system started operation in 2018 and covers the power sector. It complements the Regional Greenhouse Gas Initiative (RGGI) to help ensure that Massachusetts achieves its mandatory mitigation targets. At the last RGGI auction on December 5, 2018, allowances were sold at a settlement price of USD 5.89 per metric ton (USD 5.35 per short ton, the unit used in RGGI). As Massachusetts entities must surrender both RGGI allowances, as well as allowances from the statewide program, this means they now face a carbon price of about USD 12.60.

Auction proceeds in Massachusetts are deposited in a separate auction account and are used to fund mitigation, clean energy and vehicle electrification projects, as well as adaptation programs or projects involving communities adversely impacted by air pollution.